Selling Your Home Without a Realtor

On a side note, I have updated this article a bit to reflect a current annoyance I had with a real estate agent just this past weekend, and to promote the ease with which you can handle real estate transactions on your own, and without the use of a realtor. Far too many are unethical, and/or cost too much money based on an archaic commission structure that is long overdue for a makeover.

The following is a realtor review I left for “Karen” who is the listing agent on an investment condo I was seriously looking to purchase. I will post the direct link to my review once approved by Zillow, but until then, I have copy and pasted here:

I emailed Karen, as the sellers realtors, on a Thursday evening as I was interested in seeing a property she had listed. It was the first day of listing. The next day I had to email her twice again in order to get a response with the condo association rules. I told her I was very interested in buying the condo and wanted to see it, and told her I lived less than a half mile from the condo. She waited until later in the evening, and text me last minute to ask if I could go and meet her then and there. I have a new baby and can’t leave within minutes of notification. I told her I was available all weekend if she just gave me a heads up…she told me she would contact me the next day with the path forward. Two days later I see sale pending and text her asking what happened as I never heard back. She claimed she had 8 offers on the day she said she would notify me when to come see it, and took an offer that night. I let her know how unprofessional it was to not meet me there and entertain an offer from me as I might have had a higher and better offer. Beware as a seller who wants to sell for the highest potential offer. A lazy realtor can cost you money! They are supposed to lookout for the sellers best interest, but with most real estate agents that isn’t the case, they are looking out for their best interests…the quickest and most feasible sale for the lowest amount of effort. If I were her sellers I would be unhappy regardless of how quick it sold. The property probably couldve had a number of additional offers if she was lazy with other potential buyers like myself

Selling Your Home without a Realtor

As technology continues to improve at an almost exponential rate, it’s inevitable that some changes are going to accompany that. Some jobs are simply becoming obsolete. With the prevalence of email today we are seeing less and less of a need for physical mail delivery. Remember those old 1950’s tv shows where they would show switchboard operators connecting calls, it turns out those jobs still exist today, it’s just that there aren’t that many of them left. Next up on the chopping block, real estate agents! I personally don’t have anything against this profession, I only have a problem with their revenue model. Both buyers and sellers agents alike demand on average 3% of the selling price as their commission. That means that someone who sells their home for $200,000 owes roughly $12,000 in total real estate commissions ($6k to the buyers agent, and $6k to the selling agent). Whereas, if you sell a $500,000 home then you owe $30,000 in total real estate commission. This commission structure has always bothered me. Why should the real estate agents receive 2.5x the commission just because the house is worth 2.5x the other home value? Is there a great deal of more effort put into selling the $500k home versus the $200k home? Don’t even get me started on why they make 3% of the sales price to begin with. There is a reason why many professions are switching to fee-only revenue structures that create a more level playing field and take out conflict of interests as well.

The purpose of this article is to explain how I went about selling my house, and buying a new one, all without using a real estate agent! I was able to list, market, sell my house without using a selling agent, and saving myself about $10,000 in commissions. I will say that the process began a bit rocky at first, but I learned some very valuable lessons from it, and have since helped a few friends sell their houses themselves…with success! So if you are looking to sell your house and want to avoid paying unnecessary commissions to a real estate agent then pay attention to my process below.

Step 1: Figuring Out a Sales Price

Real estate agents often boast that they have some special power in determining an appropriate selling price. You will hear tales about sellers who have undervalued their houses, and could have sold for much more. Or, they have severely overvalued their home and the listing sat suspiciously on the market for a long period of time. With websites like Zillow it’s actually quite easy to figure out a good selling price for your home. I’m not referring to their patented Zestimate system as I have found this to typically be way off course. However, you can use their site to extract a very accurate and real value of your home. Simply type your home address into the Zillow search bar, as shown below.

From there about half way down the page you have the option to select either comparable homes “for sales” or “recently sold”.

Looking at the houses around you that are “for sale” can give you an idea of what the competition is listing their houses for. Obviously potential buyers will be looking at other similar homes in your neighborhood as well, so it helps to be competitively priced. Regardless, we have to understand that some homes are larger, include more updates, and perhaps have a corner lot with more land. All of those unique features can justify a higher selling price to potential buyers. This is precisely why I prefer to look at “recently sold” homes. The value of any item is strictly based on what people are actually to willing to buy it for, which is exactly what you get with recently sold prices. They provide a helpful view I have illustrated below that shows an information map of similar home sales and the rooms and square footage of each sale.

From there you can click on each individual home and see interior pictures to view updates, whether or not they have a finished basement, or perhaps a pool in the backyard. What’s even more important is the square foot differential versus your own home. The important statistic in buying any home is the price per square foot. This is a quick and fairly accurate representation of the value of any house. If the average price per square foot is $100/sq. ft. for the homes in your neighborhood then overall your selling price should reflect the same. From there you can add or subtract from the price per square foot based on your updates and selling features versus other neighborhood homes that have sold.

I promise you it’s not rocket science!

Step 2: Listing Your Home

I did my due diligence when selling my home. I gave a couple local realtors a fair shake and had them over to explain how they could help me market and sell my house. They guaranteed that I needed to be on the local MLS system (multiple listing service) and listed on sites like Zillow and Trulia, to which I don’t disagree. However, you can accomplish all of that without paying a dime in real estate commission. The first thing each realtor told me is that I can’t get listed on the MLS without the help of a real estate agent, and that was one of the few accurate and true statements they made. What they often don’t divulge is that you can get listed on the MLS system without paying the hefty 6% sales commission! I used the website Owners.com to get my site listed on the MLS, Zillow, Trulia, and several other mainstream real estate websites as well. For a one-time charge of $395 I was able to get my house listed on the MLS and every other major real estate site. I had a local realtor contact me within a few hours to fill out the necessary paperwork, listing description, and photo attachments I wanted to use, and voila, I got myself listed on the MLS! If you are looking for a thorough for sale by owner package with all the stuff that you will need to list AND sell, then I suggest using For Sale By Owner below.

A realtor isn’t a professional photographer either. Simply use your camera phone to snap some decent pictures to post up. Look up other similar home descriptions in your area and cherry pick from them to create your own unique description. Perhaps mention local amenities and the school system. Definitely mention any recent home updates or improvements like new appliances, carpeting, windows etc. The last step in listing your house is determining the amount of commission you are willing to pay to the buyers agent. I actually wasn’t familiar with this step! Apparently every listing on the MLS requires a set percentage you are willing to pay to the other agent. Obviously we all know that 3% is the standard commission, but since I was already peeved at the commission percentage I decided to offer only half of that, 1.5%. In the end, I had a few realtors call and complain about how their buyers were interested in seeing my house but they were ticked off that I was short changing them on the commission. One even called me and said that they talked my buyers out of coming to see my house…remember that conflict of interest I mentioned above? They proved me right. Real estate agents are supposed to do what’s best for their client, not for themselves. I was hoping for a buyer that didn’t have a real estate agent at all, but I figured that wasn’t very likely. I eventually sold my house to an agent that negotiated with me on the commission. We settled on 2% to that buying agent, I had a good offer and didn’t want to rock the boat, so I figured giving up an additional 0.5% wasn’t a deal breaker. I paid a total 2% commission instead of a typical 6%, and saved over $10,000 in doing so!Step 3: Schedule Appointments and Walkthroughs

The one true benefit I find from having a realtor is that they will field all the calls coming in, set up appointments, and be there to let the potential buyers into the house. Our solution was purchasing a $10 lockbox from Home Depot. For any realtor that called to setup an appointment we were happy to provide the lockbox code to them so they could walk through the house when we weren’t home, which most potential buyers prefer anyways. When you have a buyer without an agent you need to handle things a little differently. If they don’t have a registered agent then you want to make sure you are home while they walk through the house. Most buyers were more than happy to schedule a time that accommodated us both. Make sure to ask each realtor to leave their business card after they walk through the house, that way you can contact them if needed, and it helped me keep track of all the potential offers that would inevitable come in.

Step 4: Field Offers and Negotiations

I actually thought receiving offers and dealing with the negotiations was the most fun. Usually the realtor serves as the middle man, relaying each offer to you and then contacting the buyers back with your acceptance, counteroffer, or other questions. While it was fun, it certainly wasn’t as easy as I initially thought. Naturally you would think that the highest offer is the best one, but I found that wasn’t necessarily the case. Within one day of listing my house I received a full price offer! I jumped on it, despite receiving a couple of other similar but slightly lower offers within that same weekend. The buyers were approved for an FHA loan, meaning they could only put down 3.5% of the purchase price, and didn’t have a lot of financial wiggle room. Also, their income was a bit seasonal as well since the husband was a wedding photographer, which can make getting approved for a home loan a bit more difficult. It took nearly 2 months to get to closing, and I received a call from their realtor the day before our scheduled closing informing me that the lender had just nixed their loan to a recent job loss. By this point in time my wife and I had found a new home we were dying to buy, and had put in an offer that was accepted. Because we now were unable to sell our own house we lost out on buying the other one, and it disappointed us quite a bit. There are 2 very important points I want to note whenever accepting an offer and handling negotiations:

Earnest Money Deposit – This is the guaranteed amount of money the buyer is putting on the line if the deal should fall through. The higher this amount of money is the less likely the buyer will back out of the contract after signing. Our buyers only put down a $1,000 EMD, so when the deal fell through they were comfortable letting go of the $1,000. When I went back to the drawing board the next time around I made sure to set the EMD at $5,000 so the buyers had more skin in the game.

Loan Type – The type of loan the buyer is taking out can tell you a whole lot more than you think. Our buyer was taking out an FHA loan which meant they had a lot less money to come to the table with. If the inspection revealed any needed repairs, or the appraisal came in a little low, it was less likely that they would have the cash to make up the difference. Likewise, they stood more of a chance of having their loan get rejected, like the buyers in my case. In the end, finding a buyer who has the means to get a conventional loan (20% or more down payment) is probably a bit more likely that the deal will go through. Even better if you can find a cash buyer as the deal isn’t contingent on an appraised value at all since no loan is taking place. Eventually this is precisely the type of buyer we found, a cash buyer who wanted to use our house as a rental. We closed within 30 days and without all the red tape that accompanies a loan. We had to take about a 2% hit to our listed selling price, but in the end we found it was well worth it.

Step 5: Acceptance, Contingencies, and Moving!

Congrats, you are finally ready to accept an offer! I had no problems with the sales contract I signed because it was a standard and approved real estate form that the realtor plucked off the internet. Anything outside the ordinary was information that they had handwritten in themselves, like the earnest money amount, appraisal and inspection contingencies, and a potential move in date. As long as I was good with each of those points I had no problems signing. If you are uncomfortable with reading the contract and signing on the dotted line then I suggest finding a local real estate lawyer to review the contract. Often times you can save a few bucks to have a lawyer review to make sure everything is as expected, and that can give you a bit more piece of mind.

The appraisal is usually the next step after accepting an offer, provided that a home loan is necessary. Before paying out money for an inspection it’s important to find out if the home is worth the amount of money you want to apply for. Any difference between the appraisal and purchase price needs to come straight out of the buyers pocket, or the seller needs to come down on the price themselves. If you find yourself in this situation, and many did during the uptick in the market the last couple years, then throw that negotiating hat back on! If you are happy with the offer and you really want to make the deal happen, then it can be beneficial to meet the buyer somewhere in the middle. Perhaps he puts in half the money and you lower the selling price by the other half. If you are in no immediate urgency to sell and only want to maximize your profit then perhaps playing the waiting game is best for you….to each his own!

The home inspection is usually the final contingency, and the last chance for the buyer to find a way out of the purchase agreement if desired. Chances are they have already spent $400 or $500 on the appraisal, and the same on an inspection, so they are probably pretty serious buyers up to this point. Unless the inspector finds a material foundation issue or an extremely costly repair, don’t let their detailed home inspection report scare you into lowering your selling price by much, if at all. Buyers love to use home inspection reports to leverage a lower price, but often times it’s just a ploy for a last minute discount. Home inspectors are paid to find every potential issue there is, after all they are employed by the buyer. Our buyers found 101 ways issues they wanted corrected and wanted a hefty price decrease as well. They worried about the condition of the older appliances like the stove, air conditioning unit, and the water heater. They already knew how old all of the appliances were, but somehow when the inspector told them it became a “deal breaker”. So we simply offered them a $400 home warranty that we were happy to pay for. This gave them peace of mind that if anything broke down within the first year of owning the home they would be covered…and it worked! I also kept a few items in my back pocket that I never intended to take with us when we moved, and I figured I would use it later as bargaining leverage. For example, we never had the intention of taking the washer and dryer with us because our new place already had one, rather than offer it up to begin with I used it as a concession when negotiating after the inspection. The homeowners were ecstatic to get this because they figured they would have to buy new ones.

I remember thinking that selling our house was going to be a daunting task, and I worried way too much for nothing. My wife and I found a way to sell the house on our own, under our own terms, and profited an additional $10,000 by not paying out a massive commission to an agent. Personally, I think that realtors are going to see more and more sellers listing their houses themselves. If realtors want to stay competitive then more of them are going to have to offer fee only services that are more affordable, especially for the millions of sellers that would love to get out of their homes but are barely breaking even on home equity since the market crash.

Comments

JW….. Who is running this blog these days? The post seem a little less personal and I noticed the About section no longer has anything about the author of the blog but still has Andrea’s email for some of the contact I formation. Soooo whose posting all these articles? Thanks!

Hi Jessika! I’m still running the blog, it’s only me here. Out of the last 3 articles, I wrote two of them. The net worth article was my personal story. And this real estate article is impersonal a bit, but it was the actual steps I took when I sold my house two years ago. The reason I wrote it was because I recently have helped a few people go through the same process to sell their homes…with the number of people asking me how to do it I thought it might be a good article illustrating each step. Plus it’s getting to real estate season soon! The other article on making money was from my friend Kyle @ The Penny Hoarder…the guy gets over a million readers a year so I put up anything he wants lol.

Yeah, as for the contact info and about section, I am working on updating all of that as we speak. I am changing the tagline in the header section as well… I should’ve done all of that long ago.

I figured it was still you but I thought you had made your own about me section before! lol I’m thinking about setting up my own blog in the next few months. Although I’m not sure how much finance I will get into. Probably mostly money saving tips for parents and parenting stuff. I’m a little overwhelmed by the choices when it comes to setting up a blog. I’ve done a lot of research but I’m still not sure exactly where to start. Any tips?